Microsoft Said to Adopt AMD Chips for Next Xbox Console

Microsoft Corp. stands to benefit because game developers, who have moved toward making games for PCs and mobile devices, will find it easier to deliver those titles for the next Xbox. Photographer: Jonathan Alcorn/Bloomberg

April 8 (Bloomberg) -- Microsoft Corp. will use an Advanced
Micro Devices Inc. processor in its next Xbox game console as it
seeks to cut the cost of building machines and get developers to
create more titles, people with knowledge of the matter said.
AMD surged the most in almost two years.

The Xbox will use an AMD system-on-a-chip that combines
powerful “Jaguar” central processing units with graphics
chips, said one of the people, who sought anonymity because the
plans aren’t public. The shift to the so-called x86 format
ubiquitous in modern personal computers means Microsoft will
drop the Power PC technology designed by International Business
Machines Corp., and game discs made for the current Xbox 360
won’t be compatible.

The switch is a boon for AMD, which is also providing chips
for Sony Corp.’s coming PlayStation 4, as it seeks a larger
slice of the $67 billion global video-game market to help lessen
its reliance on the shrinking PC industry. Microsoft also stands
to benefit because game developers, who have moved toward making
games for PCs and mobile devices, will find it easier to deliver
those titles for the next Xbox.

“We’ll probably see many more titles because the console
makers are saying the publishers are back in the driver’s
seat,” said Richard Doherty, president of technology consulting
firm Envisioneering Group. Developers won’t have to reinvent
various features, such as “smoke, shading and reflections for
each machine and can essentially create once and port once, and
be done.”

Game publishers have complained that current consoles, each
with a different architecture, come with a steep learning curve
that drives up development costs, according to Doherty. Those
companies will save money with the new chips, he said.

Xbox Event

AMD, based in Sunnyvale, California, rose 13 percent to
$2.59 at the close in New York, the most since July 2011. That
left the shares up 7.9 percent this year, reversing what had
been a year-to-date decline. Microsoft slipped 0.4 percent to
$28.59 and has climbed 7 percent in 2013.

Microsoft, which had considered unveiling the Xbox 360’s
successor this month, will do it later, three people said. The
company is considering revealing plans for the new Xbox at the
industry’s E3 expo in June or at a separate event in May or
June, they said. Microsoft plans a May 21 event, The Verge
reported today.

The company hasn’t released the next Xbox’s specifications,
including whether it will have an optical drive or details of
online-game features and entertainment services.

John Taylor, an AMD spokesman, declined to comment, as did
David Dennis, a Microsoft spokesman.

Targeting Consoles

Microsoft, based in Redmond, Washington, decided against an
April event because it saw little competitive pressure from
Sony, which plans to release the PlayStation 4 in time for the
Christmas holidays, said two people.

At Sony’s February unveiling of the PlayStation 4, the
Tokyo-based company demonstrated the controller and game play
running on prototype hardware, without showing the machine.
Critics including Amir Anvarzadeh, a Singapore-based manager for
Asia equity sales at BGC Partners Inc., panned the lack of any
“revolutionary” advances and the PS4’s emphasis on social-gaming features.

Nintendo Co.’s Wii U, another competitor, has been selling
below the company’s initial forecasts since November. In
January, the company said it expected to sell 4 million units in
the year ending March 31, down from a previous outlook for 5.5
million.

For AMD, providing chips for game consoles is part of Chief
Executive Officer Rory Read’s plan to lessen the company’s
dependence on the declining personal computer market. Read is
aiming to get more than 20 percent of the AMD’s revenue from
areas other than PCs by the fourth quarter.

Sales Drop

Traditional console makers face competition from cheaper
machines like Ouya Inc.’s, and changes in game play that favor
inexpensive titles for mobile devices such as Apple Inc. iPads
and Samsung’s Galaxy Tab

U.S. retail sales of packaged video games fell 21 percent
last year to $8.9 billion, according to researcher NPD Group,
while revenue from games downloaded to computers and mobile
devices rose 16 percent to $5.9 billion. Globally, the market
including hardware and accessories was $67 billion.

The decision to switch to mainstream PC processors also
will make games developed on previous generation consoles
incompatible with the new systems, Envisioneering’s Doherty
said. Sony has said it hopes to deliver some older games over
the Web, using its Gaikai cloud gaming service.

In addition to the main Power PC processor, the current
Xbox 360 contains a graphics chip made by a unit of AMD. The
PlayStation 3 uses a custom Cell processor and graphics chips
from Nvidia Corp.

Cost Savings

The x86 technology licensed by Intel Corp. -- the so-called
instruction set fundamental to all modern personal computers --
gives the new Xbox access to existing design elements, making
the machine’s chip system cheaper to develop. The new also chips
offer more computing power than parts Microsoft is currently
using. Apple Inc. dropped the Power PC design from its Mac
computers in 2005.

In the PlayStation 4, Sony is adopting an AMD custom
system-on-a-chip processor that includes eight 64-bit Jaguar
cores with a Radeon graphics processor from AMD’s ATI unit. The
PS4 will come with a secondary custom chip responsible for
downloading and processing games in the background.

At February’s unveiling, Sony lead system architect Mark
Cerny said the PlayStation 4 will be a “supercharged PC
architecture” with advanced memory and other features that will
reduce development times by making some decisions within the
hardware.

According to Envisioneering’s Doherty, the switch will help
Sony bring down the initial cost to make its machines. For big
developers such as Electronic Arts Inc. and Activision Blizzard
Inc., the savings will allow them to reduce their reliance on
$60 titles as they compete with smaller publishers making games
selling for $20 and less.